Investors are finding record profits flipping houses that are smaller and older than in the bubble heyday of 10 years ago, according to a report released Thursday by ATTOM Data Solutions.
The Los Angeles real estate analytics firm found 193,009 home flips in 2016. These arms-length sales occurring within 12 months of purchase accounted for 5.7% of all single-family home and condos sales last year. The number is up only slightly from 5.5% in 2015, and part of a steady, gradual increase over the past three years.
The rate of house flipping is well below the bubble years of 2004 through 2006. The highest rate was 8.2% in 2005. House flipping contributed the overheated housing market, which crashed in 2008 after a wave of foreclosures.
Homes flipped in 2016 sold for a median price of $189,900, a gross flipping profit of $62,624 above the median purchase price of $127,276. That spread made for a 49.2% return on investment (ROI).
Flipped houses got older and smaller in 2016. The median age rose to 37 years, while the median size fell to 1,422 square feet.
The house age, size and ROI are records going back to at least 2000, the furthest back ATTOM Data can track them.
“Investors in search of flipping returns are increasingly willing to move to secondary and tertiary housing markets and neighborhoods with older, smaller properties that are available at a deeper discount,” said Daren Blomquist, ATTOM Data’s senior vice president.
Most flips are purchased with cash, but an increasing number are being bought with financing. Last year about $12 billion of the $38 billion home flipping market was supported with financing, a 31.5% rate that was the highest in eight years.
In the past, “hard money” lenders would charge 12% to 15% for a six- to 18-month loan. But investors are now able to get those loans at 8% to 10% through online channels such as LendingHome.com, Patch of Land and assetavenue.com.
“Lending to flippers is a nascent industry and growing rapidly,” Blomquist said.
